We are well into the summer, and Social Security recipients are looking ahead to try to glimpse the new cost-of-living adjustment (COLA) they will receive in the new year. With just over a month until the final data is available, reality does not seem to be on their side for a significant increase. In fact, millions of Social Security beneficiaries are expected to receive the smallest COLA in four years, based on some of the latest projections. According to the nonpartisan advocacy group The Senior Citizens League (TSCL), next year’s projected increase is significantly lower than last year’s 3.2% adjustment.
Alex Moore, a statistician for TSCL and managing partner of Blacksmith Professional Services, said, “The 2025 COLA projection is about 2.57%, down from 2.63% last month. This expected figure marks the lowest COLA since 2020, when Social Security recipients received a 1.3% adjustment. Subsequent years have seen a 5.9% increase in 2021 and a historic 8.7% increase in 2022. The aftermath of the pandemic was truly devastating to the economy, and the COLAs implemented reflected that reality, but seniors did not have time to rebuild their savings before this year’s adjustment brought everything crashing down again.
What is the purpose of the COLA as it relates to Social Security?
COLAs are designed to ensure that Social Security benefits keep pace with inflation, thereby protecting the purchasing power of beneficiaries. These adjustments are calculated using data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W tracks the average price of a defined basket of goods, and the average index for the third quarter of the previous year is compared to the same period in the current year. If there is an increase in the CPI-W, Social Security benefits will increase by the same percentage. Conversely, if there is no increase, there is no COLA.
The opposite happened in 2024; after the increase, inflation rates spiked again and quickly outpaced the increase, leaving many seniors in a vulnerable position. But the situation seems to have gotten a little better; the inflation rate, as measured by the CPI, fell to 2.9% in July, down slightly from 3% in June. Despite this decline, many Americans have not yet experienced relief from inflation, which remains a pressing concern, especially with the possibility of a smaller increase. The TSCL highlighted this issue, noting that inflation continues to be a “top concern” for many seniors.
The TSCL’s 2024 Retirement Survey, conducted in July, underscored the financial strain that continued high prices have placed on older Americans. Of the 2,016 seniors surveyed, 71% said inflation is forcing them to draw down their savings, making it their top financial concern. In addition, 78% said their monthly budgets for essential expenses such as housing, food and medicine had increased over the previous year. Meanwhile, 62% expressed concern that their retirement income might not be enough to cover these rising costs.
These numbers are staggering and point to a larger problem: the cost of living has become so high, especially in some areas of the country, that many seniors are struggling to make ends meet month after month. Dipping into savings for daily expenses is not sustainable as a long-term plan, and once those savings are gone, seniors are left scrambling and in need of further financial assistance from the state or federal government.
Many measures have been proposed over the years to try to alleviate the economic burden of seniors, but the reality is that none of them have been implemented and there is no plan in place to make the situation more sustainable or to increase Social Security benefits other than the annual COLA.
Read More: Bad News for Millions of Retirees in the US